Hotel brands have to differentiate beyond cleaning standards

Short-term strategies must be balanced with longer-term planning, explains Demian Hodari, Associate Professor of Strategic Management at the Ecole hôtelière de Lausanne (EHL). In an in-depth and candid discussion about the future of the hospitality industry, Demian tells David that this crisis is an opportunity for creative disruption.

He says organisations have no choice but to re-think the way they do things, because many of the hotel experiences we used to take for granted will not be relevant going forwards. As such, Demian says he’s surprised that the only major announcements coming from hotel companies so far have been about hygiene and cleaning standards. While these standards are, of course, important in the short-term, he believes they will quickly become a given and cannot be used as a differentiator – just as airline safety standards are never used as a competitive factor.

TRANSCRIPT

START AUDIO

David Keen 0:10Hi, this is David Keen. At QUO, we’ve worked for the last 20 years with many of the world’s best-known travel brands. During this unprecedented global crisis, our world of travel has changed, possibly irreversibly. This series will see us speak with many global leaders to understand how they see the future of travel.

David Keen 0:44Damian Hodari, Associate Professor of Strategic Management at the Ecole Hôtelière de Lausanne, welcome Damian to The Future of Travel.

Damian Hodari 0:54Thank you, David. It’s a pleasure to be here.

David Keen 0:57It’s our honour to have you and it’s great for us to now have an academic perspective during the series, in all of the interviews we’re trying to find diversity in our industry, and we’re trying to speak to different people with different perspectives. Obviously, as an academic Damian you have a unique perspective, and being at Lausanne, I’m sure you’re at the cutting edge of what the academic community is thinking. Damian, what are your students thinking? What are they saying?

Damian Hodari 1:33Well, I think we have to break students down into a couple of different groups. We have young students, that are 18 to 20 or 21 years old, still studying at school. We have students that are about to graduate, and then we have lifelong learners who might be doing a master’s degree or a certificate, either at school or through our digital programs. And I think they all have slightly different views. The younger students are taking it as it comes, they’ve got a couple of years until they graduate. What they’re trying to understand is how will the industry evolve by the time they graduate. Will there be jobs for them in a few years, should they change their degree programs? Should they be studying something else?

David Keen 2:14Are you seeing a lot of people asking that? Or is that because…

Damian Hodari 2:19I wouldn’t say a lot of people are asking it, for the ones that I’ve spoken to, this is the concern that they have when they email me, etc. What’s nice to see is that they don’t want to leave the industry, they chose this industry, out of a passion, right? Nobody chooses hospitality for the salary or the great working hours. In fact, it’s quite the opposite. They choose it because they love service they love doing things for other people. They like to make people’s days, rather than make, you know, a product or an automobile, for example. So, they have a real interest and they don’t want to leave the industry and I think that’s the right move for them because the industry will bounce back.

Damian Hodari 2:56The students who are about to graduate, or who have just graduated, they’ve got a slightly different concern, which is [will they be] unemployed, where they’ve gone from uneducated to unemployed from one day to the other. And this is a concern for them, so they’re trying to figure out how should they position themselves. Now, and for six months from now when, hopefully, companies start hiring, which is the data that I’ve seen. And then the lifelong learners, the ones that have been out there, that may have lost their job have been furloughed, they’ve got a slightly different concern, which is, how do they need to develop themselves now to be better positioned to get those jobs when they come back, and to be able to differentiate themselves from the hundreds of thousands or millions of other people that are out there trying to find the scarce jobs that will be available when they come back. So, everybody’s concerned but I’m not seeing any panic.

David Keen 3:48To everyone that you see, from the students that are graduating, and perhaps others, and the lifelong learners, and the ones that may have lost their jobs, are you seeing them being more innovative, more entrepreneurial, more … changing the way they’re thinking in terms of how their futures are looking or in how their careers are looking?

Damian Hodari 4:10Yeah, I think this is one of the big advantages that the younger people have, that they’re not stuck in a box or a certain way of seeing the industry, or of doing things the same way for 20 years and finding it difficult to change. They’re young, they’re very innovative, they’re very creative, and they’ve got an open mind about the way the industry can evolve. That’s part of what we’re doing at school is getting them to challenge the way the industry works, and the way people work, and to come up with new ideas. So I think they have that advantage, and that’s one of the things, when I speak to corporate executives and try to discuss with them students and young graduates and they say, ‘These are exactly the people that we’re going to need when, when the industry starts to bounce back because they have this open mind and this ability to see things a little bit differently, to be more flexible to adapt to the changes that we, as organisations, are going to require of them.’

Damian Hodari 5:07The entrepreneurial side is also a big focus for the students, we’ve seen a huge increase over the last five or 10 years and people that want to develop their own companies. And I think this is also a great time for them, if they can have a little bit of money rather than sit on their parents’ couch waiting for things to bounce back, trying to encourage them to explore new ideas and try to start their own businesses at least get those ideas very solidly established so that, when funding is available again, they’ve got a great pitch and a great idea for somebody.

David Keen 5:37Damian, as you know I’ve been talking a lot about, I said more or less in every podcast, this idea of the antique or the traditional age versus the modern age and the new age when you think about these students and you think about these guys who are coming into the market and, you know, the training programs may no longer be the traditional routes of the first two or three years of establishing yourself with job experience in the hotel industry particularly, well they may be different. And when you think about entrepreneurial ventures, what kind of ideas are you hearing and seeing?

Damian Hodari 6:16Well, being careful not to betray anybody’s confidentiality. I won’t give you any specific projects that I’ve heard about, but in general, a lot of tech-based ones, for sure. [I’ve heard about] ways to bring people together, ways to remove the contact-heavy or the high touchpoint aspect of the industry. I’ve heard a couple of interesting ideas there. There’s always been a big focus in the last five years about millennial travelers, right? This is a huge market for a lot of companies and so these Millennials are the ones who best understand themselves, and I’ve heard a couple good ideas about what Millennials are going to want from their travel experience going forward, everywhere from the distribution side to the actual experience side.

Damian Hodari 7:00And so I think they’re coming at it from multiple perspectives. Tech-heavy, contact-free experiences as a result of that technology, but also on the experience side: What will people want when they travel? How will that be different than it is now? And we, those of us that are a bit older, may actually start to see what Millennials are asking for, and demanding, and I think some of us are going to start to realise, ‘Wait, they’re onto something that actually could be a more interesting experience and journey for us.’

David Keen 7:31And so, it’s really interesting to hear that, because in my fairly extensive experience and I know yours, the travel-hospitality-tourism industry has not really been a great incubator or catalyst for startups there, of course, have been some. We know the famous hotel brands that have started in Northern Europe, and some of the OTAs spring to mind, but broadly, it’s not a great catalyst for startups. Might the beginning of a new age be the catalyst for changing those fundamentals within our business?

Damian Hodari 8:13I think there’s no choice but for that to actually happen, right? The industry cannot continue the way it has, nobody is saying that, and those that are saying that, I think are wrong; that this is simply an interruption, and that life will continue the way it was before. Industries are going to change, hotels, have already realised that many of the things we take for granted: that warm check-in, the experience, the heavy service aspect of encounters, the rooms full of objects…none of this is going to be relevant going forward.

Damian Hodari 8:47And so, if we don’t innovate, if we don’t find ways to, not only change the basic things that we experience, but the way the industry works, everything from hotels’ relationships to their OTAs to development, to not only design of properties, but also the employee aspect of that: How many employees can we cut? Becoming less employee-dependent which, of course, is a negative for jobs but all crises lead to these kinds of innovations and creative disruptions, which allow the firms to rethink the way they do things. So, we have no choice but to do that and I think, as the time goes on and the immediate short term aspect of the crisis starts to evade., we’re going to the seeing firms start to think a bit more about the medium- and long-term, and the long-term might only be two years from now, we’re not talking 10 years.

David Keen 9:44From a pure cost point of view, obviously, the hotels have been looking at OTAs with, you know, 20 to 25 percent costs for a booking. The opportunity, be it in booking, in revenue management, in experience development, in training, in all of these elements that traditionally or historically have been huge costs to a hotel or to a business, the opportunity now, given the cost basis that everyone’s going to be working from, are going to, hopefully or possibly, be a catalyst for for these kind of new businesses.

Damian Hodari 10:32Yeah, I would agree I think you’re going to see changes in, not only the relationship to the OTAs, but maybe some new OTAs that come online with different pricing structures and working more closely on the side of the hotels to combat the high price issue. We’ve already seen the fact that select-service hotels, as opposed to full-service hotels, that have less employees per guest are going to prosper earlier than the full-service hotels because they’re less dependent on labour, those concepts like the citizenMs of the world that are much more efficient in terms of labour. They’ve just got a distinct advantage over these more luxury full-service, heavy hotels that have much higher fixed costs. I think you’re going to see the same issue with regards to the supply chain and hotels trying to take more control and doing more local and regional purchasing and work more closely with less suppliers in order to reduce that cost as well. There’s always a risk of not being diversified enough in that supply chain, but I think they’re going to have to find more ways to lower those costs, for sure. And again, technology is going to play a huge role in all that.

Damian Hodari 11:44Yeah, absolutely, and apps and booking apps and all of that stuff. But, yeah, let me ask you, my OTA question: Do you think that the power of the OTAs is going to enhance or diminish as a function of the virus?

Damian Hodari 12:06Yeah, it’s a great question because there’s evidence for both. On the one hand, consumers are becoming much more comfortable with technology. Now, most of us already were, but the number of people that are using technology now for conferencing or online shopping or education has just skyrocketed. So, will they become more comfortable using that to search the OTAs for hotel or travel-related stays? There’s an argument on that side.

Damian Hodari 12:33On the other side, this is probably the best opportunity for the hotel companies, for example, to build stronger relationships with customers, build up that brand and convince customers that they need to support hotels and hoteliers. And one way to do that is by booking directly, so we’ll be curious to see to what extent the hotel companies are willing to challenge the OTAs more than they have before. We always described them as frenemies, right? We need them but we don’t actually want them. And I think this is the moment we’ve been waiting for, to see what hotels are willing to do, and I know a couple of the CEOs have been speaking about this internally, saying we need to reduce, not only the fees that we’re paying, but we need to reduce our dependence on these OTAs now.

Damian Hodari 13:20So, we are going to find ways to reduce that OTA dependency and build more support for us, as owners of the properties that you are branding with your company?

David Keen 15:30Damian, is that the biggest fundamental change you see from the virus?

Damian Hodari 15:40I don’t know if I could say it’s the single most important one, I think it’s a critical one. I think another one is going to be how the hotels alter their experiences and relationships with the customers and how customers and travellers want their experiences and their hotels to be in the future. And I think the, not only physical, but experiential changes that the hotel companies and hotel owners – because this applies just as much to small independent hoteliers – are going to do to adapt to the changing customer profile and desires.

David Keen 16:23Right. And how well do you think the hotels are going to be prepared to do this? I mean, we’re all saying, they need to change. This has all catalyzed and crystallised over the last two months. Are they ready?

Damian Hodari 16:47I think this is the biggest concern that I would have about the future of some of these companies, you know, understandably, they’re all very short-term focused right now, they’ve laid off hundreds or thousands or millions of employees, right? Seventy percent of hotel workers in the United States are unemployed right now. So this is, I think, the number one concern for everybody, the well being of these people and recreating jobs. So, it’s a little harder to look down the road, but they need to be doing that because, at some point, we’re going to be down that road in some firms you can be ahead of other ones.

Damian Hodari 17:22There’s a huge focus right now, as you probably aware, on cleanliness in hotels. Every hotel company has, pretty much, come out with their new clean standards. The American Hotel and Lodging Association in the US has come out with their recommendation for everybody. They’ve done the same thing in Singapore, and it’s understandable, people are concerned about the virus and contamination and getting these viruses, it’s about cleanliness. But that’s the only major announcement I’ve seen from any hotel company about what they’re doing to address this issue.

Damian Hodari 17:55And, you know, while it’s important, as a traveler and as a parent, of course I’d be concerned about cleanliness in any hotel or lodging establishment that I was going to visit. But the hotel companies are not going to be able to use this as a differentiator. I don’t see the hotel companies saying, ‘Our brand is cleaner than the other one.’ Just like airlines don’t say our airline is safer than another airline. The airline industry portrays itself as a safe transportation option. And I think the hotel companies, and hotel owners, are going to have to do the same thing, just say, ‘Hey, there’s no problem here, everything is clean,’ but right now, all they’re saying is, ‘We’re enhancing our cleaning standards and now hotels can be cleaner than ever before,’ which makes you wonder why weren’t they as clean as they could be?

Damian Hodari 18:48And then, the idea that their branding their cleaning policies with these clever names, it reminds me a little bit of what happened in 1999 when the Westin came out with the heavenly bed, and suddenly, you know, 2,000 years into the history of hotels or inns, suddenly the companies recognise that the bed is key, customers want a good bed, and then suddenly all the brands came out with their own bed, and it was no longer a differentiator – you had to have that nice bed just to be in the game. And I think the same thing is gonna happen with cleanliness, it’s just going to become a standard, acceptable requirement but not a way for the hotels to differentiate. The concern is that, with all the focus on that, what are they not focusing on that they could, in order to innovate?

David Keen 19:34Or bring something new to the table, right? That’s obviously the question. I mean it’s, you know, without exception, and we were chatting about this before we started recording, there’s no question that hotels have to be safe, they have to be clean, the basics. It’s kind of like having a door that locks, or running water or a running toilet in the room. If they don’t have that, they might as well not open, and today they need to perhaps make some sort of an announcement or some sort of communication that they are cleaning a little bit more and they’re doing all of those things. But what else do they need to think about? I mean, is it from the moment of first interaction with the brand until they until the consumer leaves and books and stays and experiences and then leaves. What else should they be thinking about? What are you hearing?

Damian Hodari 20:35I think because of the impact in hotel events and meetings, and the restaurant space, and the public areas where we’ve had this big trend towards creating public areas that are living rooms and people should socialise in there, ‘Get out of your room and come be with other people,’ all these, at least in the short- to medium-term, is going to be under pressure and need change. So, how are hotels going to generate additional revenue in the space that they have, with fixed costs and big assets and areas within the hotel that they’re going to have to rethink the way they use. So, is it smaller events but giving people more space? Is it restaurant design with this two-metre economy, and needing people to be more separate, the restaurants. not only on the high-street country, but also within hotels, they’re going to have difficulty making money if they can’t do room service the way they’ve done, and granted, room service was was fading away for a lot of brands, but maybe we need to re-do room service in a new way, in order to provide food and beverage to hotel guests.

Damian Hodari 21:37The resorts, where you have a high concentration of people in a small area, are clearly at a disadvantage to those resorts that are spread out over more land with bungalows, etc. So, these design properties are obviously going to have to change as well. Convention hotels, large meeting and event hotels, I think they’re under the biggest pressure of anybody. And, so how will they rethink what a meeting and event has to be? We know that the meeting and event content can be done mostly online now, we’re seeing this through great virtual conferences. And we also recognise that, probably the primary reason for such kind of meetings and events, is the socialising and the networking. And if that really does still have to take place in person, I think you’re going to see some innovation in how event organisers manage that aspect of the business in order to stay relevant, knowing that the content can be distributed online to lots of people.

David Keen 22:36And what does it mean to social spaces, and then social meeting and co-working and all of that? We’ve talked quite a bit about that. What does it mean as you dig a bit deeper into the convention hotel? I was listening to the mayor of Las Vegas on an interview with Anderson Cooper on CNN the other day and it made me think about the future of a place like Vegas or Macau. And, you know, there are other destinations in the world that rely on these gigantic conventions. Can they survive? Will they survive? Do they evolve? Will they change? Or are we over-intellectualising and they’ll go back [to how they were] in six months after people start travelling to maybe smaller events, what do you think is going to happen?

Damian Hodari 23:35I think, in the short- to medium-term, these places had a lot of problems and I was particularly glad I’m not an investor in any of those businesses. I think they are probably not sleeping at night because they know that either through government regulation or customer concerns or corporate entities not allowing their staff to go to these types of hotels or events, they’re under a lot of pressure. You know, we said the same thing after 9/11, when we were afraid people wouldn’t fly again, and clearly a few months later, people were flying in record numbers again. We said after the Great Recession, ‘Will there be disposable income? Will people continue to spend money on recreation and leisure or will they save everything out of concern?’

Damian Hodari 24:21We spoke last decade to record numbers for hotel stays and travel and leisure experiences, so I guess the hope is, once there’s a vaccine or once there’s great policies towards contact tracing. etc. and people start to trust again in travel and being in social environments with large crowds that this will bounce back. The problem would be if, all we do is hope for that in the future, and aren’t taking time now to think, ‘How do we need to evolve? How do we need to change?’ You know, to be fair, it’s so early in this whole crisis that I don’t think anybody has a clear idea about when this crisis will end, and what it will mean for a lot of these businesses.

Damian Hodari 25:05What matters is that they have these discussions, that they’re talking to lots of people, not just within their organisations and not just paid consultants, but academics, customers, suppliers, friends, to try to start to make sense because a solution will come for these businesses. No one’s gonna let Las Vegas become a desert town, to use a horrible expression by them, it is going to bounce back. That’s like parking airplanes in the desert and letting them die. No one’s gonna let Las Vegas die.

David Keen 25:46That’s a fascinating thought, and it’s not just in Vegas or Macau or Singapore or Bangkok, where we are, or Hong Kong, here’s no question. But all over the world are these gigantic convention halls and spaces. It does seem as though they need to be repurposed or they are sent into some sort of dormancy.

Damian Hodari 26:15I don’t know, it all depends on how this crisis resolves itself, how is it resolved, if there’s a vaccine. And in a year, or two years, everybody’s vaccinated and the health implications are minimal. Why wouldn’t they bounce back? Because people do forget, and they like to go on trips, and they like to go to casinos and they like to go out to restaurants and I don’t know if people will fundamentally change the way they see the leisure and recreational travel side of their lives. People consider these almost a necessity or a requirement to lead a good life, for people that can afford it. If there is no vaccine, if another health crisis comes along, of course, this becomes a more drastic issue for people to be considering, so I think it’s two things. We need to be addressing the short-term survival needs of these companies and properties.

Damian Hodari 27:13Secondly, we need to be thinking about how do these things evolve in order to gain the trust of customers and employees. And then third is, if they bounce back the way they were before, eventually in terms of numbers, do we just sit there waiting for the next crisis and then have to face this again? Or do we take steps in order to be ready for that, both on the health side of the issue but also on the business side.

David Keen 27:36Right, and obviously the economic damage to not just individuals but macro economic damage. The carnage is just beginning. And it’s so severe that one has to…While I totally agree with you, I mean, obviously everything you say makes all the sense in the world and I’m optimistic as well. I think people will travel. The question is how,and for how long, and in what way can any of these organisations survive in this period?

Damian Hodari 28:15I’m conscious that I’m not giving any concrete solutions here, right? And then and I don’t pretend to have answers for everybody. I don’t think anybody has those answers. And I don’t think anybody who says, ‘this is the solution,’ knows what they’re talking about yet, because we still don’t understand the problem. The way it’s impacting every day, there’s no article showing us down value chains, the implications that this has on taxes, on local communities and the ability to pay essential workers, etc. And so, it’s impossible right now to have solutions. What we need to be doing now is to understand the problem more, and the possible ways that these macro environments and the industry will evolve, so that we can strategise in the medium-term.

David Keen 29:02Damian, how much more greater purpose do you think we will see in the industry as a whole, and in individually branded products.

Damian Hodari 29:17You know, most people describe me as a pessimist. I like to describe myself as a realist. I actually have an optimistic answer here. If you look at what’s been happening in the industry, the way companies have responded to the crisis, from hotels lodging, free of charge, health workers and essential workers and patients, to restaurants delivering food free of charge, or at cost to, again, these same types of individuals and organisations, to airlines flying equipment or shifting towards cargo for medical purposes. You know the industry has answered the call.

Damian Hodari 29:56Yeah, I think the industry, and people within it and firms and line-level workers have recognised that the hospitality, travel and tourism industries are a service industry, are there to do good things for people, and this crisis has given them the opportunity to demonstrate the level of concern and passion for taking care of people that we who work in the industry have. So I’m hopeful that firms and brands and individuals will say ‘we need to carry this forward into the future we need to demonstrate and add more upon these principles of hospitality and service.’

Damian Hodari 30:39Fundamentally, how will it change the business model, I don’t have an answer to that but I hope that companies just as they are saying, this may be an opportunity to become more sustainable as well and to demonstrate that we can do things in more cost-effective and resource light-ways. It’s also the time to demonstrate that we can change from from being fundamentally profit-driven, faceless organisations to more caring, purpose-driven firms and entities.

David Keen 31:18Damian Hodari, Associate Professor of Strategic Management at Ecole Hôtelière de Lausanne. Thank you for being our guest on The Future of Travel.

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